Reporting Tax Fraud - Are You a Bounty Hunter?
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Did you know you can turn in tax cheats for bounty?
Section 7623 of the Internal Revenue Code authorizes payments for detecting underpayment of tax and detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or "conniving" (love that word) at the same.
As pointed out by Timothy W. Maier, writing forInsight on the News, offering cash incentives for information about alleged criminals is a time-honored technique. In addition to the IRS, which collects about an additional $100 million from tax cheats annually by paying out rewards anywhere from $2 million to $5 million, the FBI, according to Meier, claims to have captured 140 suspects through its 53-year-old "Most Wanted" program as a result of offering millions in cash. And look at the success of the TV program America's Most Wanted in bringing criminals to justice.
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Maier reminds us that "[r]ewards paid by authorities date back to the Bible when Judas was paid 30 pieces of silver to betray Jesus. They were common in England in the 18th century when thieves were paid for police tips, and they continued to be popular in the Wild West where bounties routinely were offered and paid to gunmen such as Bob Ford, who for $10,000 shot the notorious outlaw Jesse James in the back on April 3, 1882. Today, rewards even are announced to try to throw off police or deceive the public as O.J. Simpson may have done when he offered $1 million to find the "real killers" of Nicole Simpson and Ronald Goldman."
If you want to report suspected tax fraud, use IRS Form 3949-A, Information Referral. It can be downloaded at IRS.gov, or ordered by calling 1-800-829-3676. The report needs to include specific information about who is being reported, the suspected fraud being reported, how the fraud became known, when it took place, the amount of money involved and any other information that might be helpful in an investigation. You are not required to identify yourself , although it is helpful to do so. The IRS says that your identity can be kept confidential.
You may be entitled to a reward, but keep in mind it is completely discretionary whether you will be given a reward. You have no legal right to a reward. In order to apply for a reward you must file Form 211, Application for Reward for Original Information. The quality of your information is critical because the IRS is swamped with leads - many of them vindictive - things like reports of tax fraud by former spouses and former bosses. The IRS has limited resources and, of course, pursues leads with the best chance of bringing in substantial revenue.
According to IRS Policy Statement 4-27, while the amount of the rewards and whether one is payable at all is completely discretionary, in general , the Service will follow these guidelines:
- For specific and responsible information that caused the investigation or, in cases already under audit, materially assisted in the development or identification of an issue or issues and resulted in the recovery, or was a direct factor in the recovery, the reward shall be 15 percent of the amounts the Service recovers, with the total reward not exceeding $10 million.
- For information that caused the investigation or in cases already under audit, caused an investigation of an issue or issues, and was of value in the determination of tax liabilities although not specific, the reward shall be 10 percent of the amounts the Service recovers, with the total reward not exceeding $10 million.
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For general information that caused the investigation, but had no direct relationship to the determination of tax liabilities, the reward shall be 1 percent of the amounts recovered, with the total reward not exceeding $10 million.
How likely are you to get a reward? IRS senior program analyst says "We determined from a study that one in 10 informants actually asks for a reward and approximately one in 10 of those gets one." In fiscal 2002, the IRS paid $7.7 million in rewards that led to $66.9 million in additional collections. There were 6,982 reward claims filed during that period and only 215 rewards allowed in full. Don’t start spending your reward money until you get it.
Just about any word used to describe this behavior has a negative connotation: stool pigeon, tattle-tale, snitch, rat, squealer, informant, fink, whistle-blower. Should you turn in a cheat and a fraud?
Much has been written about the issue in connection with business ethics. Look at the treatment of people who expose wrongdoing in their companies in the media. People who report wrong-doings by their companies are subjected to persecution, pariah status, and blacklisting. They often are ostracized by co-workers, lose their jobs and can't find work in the same industry.
According to Jim Hillesheim, Professor of Education at The University of Kansas, it is a social fact that honest employees rarely report theft committed by unscrupulous coworkers or managers. Psychologists and behavioral scientists offer various explanations, but the most prevalent one is that the hesitation to report theft is due to fear of being thought of as a tattletale. Reporting a theft or other wrongdoing is seen as a violation of a deeply entrenched code of conduct that demands that one not be thought of as a snitch.
Children get the message that they should not be "tattletales." Years later as adults, when they should be seeing the world in adult terms they are still afraid to come forward. As Hillesheim says, "we need only to ponder how horrible society would be if no one, having witnessed a crime, would step forward to help police, because he or she did not want to be thought of as a tattletale.
Remember, you can come forward with information and not claim reward. What is your motivation, after all?
This excellent article published in The American Journal of Psychiatry (164:722-727, May 2007) gives advice on how to document your client's capacity. Check it out:
